Positioning and selling a PMS product Challenges and opportunities

17th February 2017

Structure of the presentation

• What is the position of a PMS in a client’s portfolio?

• Why should anybody choose a PMS when there are so many equity

mutual funds?

• What not to do while selling a PMS

• How the PMS business has grown in India

• Why the PMS business will continue to grow in India

The traditional “risk-reward chart”

Money Market Short Term Funds

Medium Term Funds

FMPs Long Term Debt Funds

MIPs Balanced Funds Diversified Equity Funds

Sector Funds

R

i

s

k

Return

Risk Return Matrix

Note: the shaded portion represents equity products

A different method to position equity products

Established businesses

Newer businesses

High Low The level of “institutional imperatives”

Re

Large cap funds

Mid cap funds

Multi cap funds

ELSS funds

Private equity funds

Venture capital funds

What are “institutional imperatives” ?

• The need to “constantly outperform”

• The need to be benchmarked to an index

• The necessity to avoid shares that do not show a

promise of relatively quicker upward movement

• PMS Industry AuM

has grown at a faster

pace than industry

equity AuM in FY

2017

• The Discretionary

Equity PMS industry

AuM has more than

doubled in the last 2

years

• PMS flows are a

substantial part of the

asset management

industry.

PMS Industry AUM Growth

AUM (Crores) Mar-16 Dec-16

Growth (Crores)

Growth (%)

PMS 47,321 62,017 14,696 31.06%

MF Equity 3,86,403 4,69,675 83,272 21.55%

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16

Discretionary Equity PMS AUM

Source: SEBI, AMFI

• The number of wealthy households is expected to increase dramatically in the

next 10 years as households become richer and the benefits of economic growth

become more widespread

• The “Globals”and “Strivers”are expected to have the highest growth rates in the

next few years

The Potential for Growth

101.1 74.1

49.9

91.3

106

93.1

10.9 55.1

94.9 2.4

5.5

33.1

1.2

3.3

9.5

0

50

100

150

200

250

300

2005 2015 2025

No. of Households (Millions)

Deprived Aspirers Seekers Strivers Globals

11.15%

19.65%

5.59%

-1.28%

-3.88% -5%

0%

5%

10%

15%

20%

Globals Strivers Seekers Aspirers Deprived

Expected Growth Rate of Households (2015-2025)

Source: McKinsey Global Institute

• The Aggregate disposable income with the “Globals” and “Strivers” is

expected to grow manifold in the next 10 years

• These 2 social classes could be the potential market for products targeted

at HNIs.

The Potential for Growth

5.4 3.8 2.6

11.4 14.6 13.7

3.1

15.2

30.6 3.8

20.9

6.3

21.7

0

10

20

30

40

50

60

70

80

90

100

2005 2015 2025

Aggregate Disposable Income (INR trillion)

Deprived Aspirers Seekers Strivers Globals

Source: McKinsey Global Institute Source: Kotak – Top of the Pyramid 2016

62000

45000

146600

135000

0

20000

40000

60000

80000

100000

120000

140000

160000

No. of UHN Households Net Worth (INR Billion)

Growth in UHN households in India

2010-11 2015-16

• According to a recent study,

the total individual wealth in

India is about INR 304 Lakh

Crores

• In India, Financial Assets

make up about ~56% of this

wealth

• However globally, financial

assets are more than 2/3rd

of investible wealth

The Opportunity: The Investible Wealth

56.53%

43.47% Financial Assets

Physical Assets

13.00% 24.80%

43.10%

41.60%

25.67% 15.70%

18.23% 17.90%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

India Global

Classification of Individual Wealth - 2016

Equity Debt (Including Cash) Alternate Assets Real Estate

Source: India Wealth Report 2016, Karvy Wealth

• Direct Equity (including

promoter holdings) account

for only ~17% of the

investible wealth in India

• Mutual Funds account for

far less of the total investible

wealth in India ( about ~4%)

The Opportunity: Equity Investments

Source: India Wealth Report 2016, Karvy Wealth

50.97%

17.23%

14.81%

6.69%

3.83%

3.63% 2.84%

Deposits & Bonds Direct Equity Insurance Provident Fund Small Savings Mutual Fund Pension Fund & Others

• There exists a large opportunity for products targeting

the UHNI clients

• At the same time, it is imperative that these products

are sold with the right messages

• Rather than being sold as a “superior” product, it is

better if the PMS is sold as a “complementary” product

In Conclusion

• Disclaimers and Risk Factors:

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